ENRON'S DIRTY LAUNDRY

The U.S. Senators seemed a little taken aback by the gall of the star witness. Hauled before a congressional committee last week, former Enron CEO Jeffrey Skilling not only declined to take the Fifth, he seemed unrepentant, unbowed, at times defiant. He insisted he had never lied. Enron's problems were all someone else's fault. Scandal junkies, who had been looking forward to a showdown between Skilling and Enron whistle-blower Sherron Watkins, were disappointed. Even though she sat but a few feet from her old boss, Watkins did not even make eye contact with Skilling. Somehow Skilling emerged from five hours of skeptical questioning appearing just as cocky as ever. Watching the spectacle from the privacy of her palatial home in Houston, former high-ranking Enron executive Rebecca Mark felt a mix of emotions. She was amused by the theatrics of the confrontation, appreciative of Skilling's contempt for showboat politicians and miffed at his continuing criticisms of her division, Enron International. Overall, the businesses "that EI was running were profitable from its earliest days in 1993 until I left the company in mid-2000," Mark told NEWSWEEK. But she was not surprised at Skilling's sheer bravado, his ability to intimidate. For much of the 1990s, as Enron had soared from obscure utility company to Empire of the New Economy, Mark had been Skilling's chief rival. As one of Enron's rising stars, she had been named twice as one of the 50 most powerful businesswomen in America by For-tune magazine. Her reputation as a hard-driving dealmaker was known to heads of state and corporate CEOs all over the world. But within the vicious, Darwinian jungle of Enron, she had been quietly devoured by her nemesis Skilling. In Mark's view, she had been bad-mouthed by him, undercut by him and ultimately outmaneuvered by him. According to the company's feverish gossip mill, she had even been romanced by him. "I won't even dignify that with a response," Mark says. A spokeswoman for Skilling says the rumors are "absolutely, positively, completely false."

If Mark had taken a bitter pleasure in Skilling's current woes--the congressional grilling, the mounting lawsuits, the inevitable criminal investigation--no one would have blamed her. And yet she was not altogether happy to be out of the game. Sure, she had sold her stock when it was still worth $56 million, and she still owns her ski house in Taos. Her battle with Skilling, however, had been a wild, exhilarating ride.

The Enron scandal has been told as a kind of Greek tragedy, a cautionary tale of hubris, even a battle of the sexes. But it can perhaps be best understood as a brutal competition. The miracle of the marketplace is supposed to be that competition is healthy--that the struggle to create something better, faster and cheaper benefits nearly everyone. That's the theory, at least, that some people use to explain why greed is good. But throw in pride (and lust), and sometimes the game goes out of control. This is the story of how Jeff Skilling and Rebecca Mark took their rivalry and drove it--and a multibillion-dollar company, its employees and its stockholders--right off the edge of a cliff.

While the drama played out, Enron founder Ken Lay seemed more interested in schmoozing Washington and going to charity events in Houston than running the company day to day. The two young dynamos vying for his favor offered competing models of the future. To Mark, the road to riches lay in building ever-grander castles, massive energy infrastructures. But to Skilling, tangible assets like power plants were just toys. The real money, he argued, was in the action--the trading, buying and selling. They each had an enormous interest in justifying their respective visions.

Inside Enron, Mark was sometimes known as "Mark the Shark." Blond and tall and toned, she was sleek and fast and knew how to bite. When she entered the utility business in the early '80s, it was populated with frumpy males in baggy suits and short-sleeved shirts with pocket protectors. Mark wore stiletto heels and tightly tailored size-6 Escada suits. She was a builder. Her job was to create and develop power plants and sell the electricity they made. In the sleepy, once tightly regulated world of power companies she was regarded as both a curiosity and a whirlwind, able to use her femininity and no-nonsense manner to disarm, then buffalo the men sitting across the table. By the mid-'90s, she had constructed or acquired five plants in the United States and was on her way to buying or building well in excess of 15 in Europe, Asia, South America and the Middle East.

But inside her own company, she had competition. Like her, Jeff Skilling had been born middle class and Middle Western, gone to college in Texas and to Harvard Business School. They both turned 40 in 1993; both were clearly on track for the top jobs at Enron. But Skilling saw himself as the true visionary. Buying power plants and selling their product--that was Old Think, argued Skilling. In the new, wired, free-for-all economy, the greatest rewards would go to those who made markets, who bought and sold--but didn't actually own much of anything. Constructing and running power plants was for chumps: it required huge capital investments and never produced the return on investment he was after. Anyone could build a factory, Skilling said. But it took a special genius--a whiz kid who had not just been a Harvard Business School grad but a high-ranking Baker scholar--to manipulate all the pieces, to make them add up to more than the sum of their parts. (As it turned out, it also took creative and possibly fraudulent accounting that masked losses and debts and recorded projected and far-from-certain future profits as present earnings.) And why stop at gas and electricity? Why not trade water or broadband capacity? By the time Skilling was done, Enron would be trading securities based on weather data.

Skilling was aggressive and brash, not so much articulate and smooth as cunning and willful. He thrived on one-upmanship and didn't mind trying to embarrass the less-quick-witted or anyone who challenged him. In one conference call with Wall Street analysts he dismissed one nagging questioner as an "a--hole." Skilling wanted to stomp not just Enron's competitors in the corporate world but any potential rival within Enron. In 1993 he persuaded his boss--Ken Lay--to cut him a piece of Mark's business. Skilling was given control of Enron's power plants in the United States; he promptly sold these assets in order to have more cash for his plans. (Skilling's spokeswoman says he never considered Mark a direct rival.) At first, Mark was baffled by Skilling's raid on her turf--especially since it was a sneak attack. She had never been given a chance to make her case. She regarded Skilling as a flashy consultant type who had never done the hard work of building anything.

Rather than pout, Mark just pushed herself harder. She became a world traveler, ranging round the globe buying and building plants. She lived high and, in retrospect, paid too much, especially for a $3 billion plant in India that immediately became enmeshed in local political intrigue. But she wanted to prove that her way was the golden road. As she flew around in her corporate jet and smart suits, she began to get noticed. She worked with Henry Kissinger to lobby the Chinese prime minister on the need for Western-built pipelines and plants. She spoke on the phone to the Israeli prime minister and raised the gender awareness of a high-ranking official in Qatar. At first, the Qatari official refused to address her directly, but by the end of three hours, he was gushing, "It's a shame you haven't been here before. We would have resolved the issues a long time ago."

In foreign capitals, Enron was no longer being confused with Exxon. Mark had every reason to believe her bosses would be pleased with her efforts to extend and enshrine the Enron brand. She was, like other Enron executives, showered in stock options. But she didn't get quite the glory she anticipated. Perhaps because Lay saw himself as Enron's pitchman, he didn't seem to welcome Mark's high profile.

Lay's boy, it soon became clear, was Skilling. While Mark globe-trotted, Skilling was filling headquarters with his own troops. He was not looking for "fuzzy skills," a former employee recalls. His recruits talked about a socialization process called "Enronizing." Family time? Quality of life? Forget it. Anybody who did not embrace the elbows-out culture "didn't get it." They were "damaged goods" and "shipwrecks," likely to be fired by their bosses at blistering annual job reviews known as rank-and-yank sessions. The culture turned paranoid: former CIA and FBI agents were hired to enforce security. Using "sniffer" programs, they would pounce on anyone e-mailing a potential competitor. The "spooks," as the former agents were called, were known to barge into offices and confiscate computers.

Some employees found the cultural revolution troubling. The Rev. James Nutter of Palmer Memorial Episcopal Church heard from so many unhappy Enron souls that he penned a letter to Skilling: "These people don't belong to you," Nutter recalls writing. "They belong to God." But many Enronites worshiped Mammon instead. The real status symbol at Enron was not a new Ferrari but one of the company's half-dozen parking spaces monitored by security cameras. Skilling would take his favorites, "The Mighty Man Force," as one employee called them, on macho adventure trips. They raced across Mexico on a 1,000-mile bike tour. While tearing through the rugged Australian Outback, the overexuberant Mighty Men trashed several expensive SUVs they'd rented.

Enron parties were suitably imperial, with Tiffany glassware as door prizes and waiters standing by at all times with flutes of champagne. Some of the informal partying was less classy. At one catered affair, Enronites opened wide for "luge shots," cocktails poured over a block of ice straight into their mouths. At Treasures, a "gentleman's club" in Houston, the strippers began to look for the flash of an Enron credit card. "That's like having a platinum card," one stripper told NEWSWEEK. "If it's an Enron guy, they got money." (Or did.) In the high-rolling days, Enron traders on their lunch break would buy a bottle of Cristal champagne (up to $575) and repair upstairs to the "VIP Room." The Treasures manager, who identified himself as "Mitch," said he was "unaware" of sexual favors being bestowed in the VIP Room. Said a stripper: "If a guy's going to pay you $1,000, use your imagination."

Sex suffused the Enron atmosphere. Skilling divorced his wife and became engaged to an Enron secretary, whom he promoted to a $600,000 job and whom insiders immediately dubbed "Va Voom!" One top executive, Lou Pai, divorced his wife and married a former stripper. Several women who were believed to be sleeping with their bosses were called "The French Lieutenants' Women." Staffers fearful of the next rank-and-yank session worried that these women were acting as spies. The most celebrated affair was between two top executives, Ken Rice and Amanda Martin. Their affection, described by Enron staffers to NEWSWEEK as "touchy feely" and "obscene," was visible through the windows of Martin's office.

Mark apparently had her own intramural affair. In the late '80s, after she was divorced, she had a relation-ship with an Enron consultant, John Wing. Some of Mark's colleagues believed their relationship continued after Wing joined Enron. Some employees found the office romances and salacious gossip so disturbing that they proposed the company adopt a formal policy against fraternization, according to a former personnel executive. The company let the suggestion drop.

Mark was not above ostentatious revelry. At a party to celebrate the development of the Enron power plant in India, she brought a small elephant into a resort outside Houston (at the same party, dressed in leather, she rode in on the back of a Harley-Davidson). But for the most part, she remained outside the Lay-Skilling in-crowd, working in a separate building downtown. She failed to fully realize how hard Skilling was working to undermine her.

In 1997, Skilling was given another chunk of Mark's territory--energy development in parts of Europe. Too late, Mark realized that Skilling was playing for keeps. The two had a "short and extremely acrimonious" discussion, she says. But by 1998, Skilling was Enron's chief operating officer. Mark was made vice chairman, a fancy title for a position described by Enron insiders as "the ejection seat."

Mark had one last play. That same year she took over a small water company called Azurix spun off by Enron. Mark had grand plans for Azurix: essentially to control as much of the world's drinking water as possible and sell it for a profit. Yet lacking adequate financing from Enron, she took the company public before it was ready. But the stock quickly crashed. Azurix invested heavily in an English company--but again was ensnared in local politics, and the project turned out to be a loser. To help her make deals, she brought in the hard-charging Amanda Martin, who, like Mark, was stylish and well educated. But she had misgivings about Martin. Some of her colleagues suspected that Martin was a spy for Skilling. Martin dismisses the notion, but says she understands why some people believed it. "I was one of the few people coming out of Jeff's camp,'' she says.

Mark left herself open to attack. When she tried to buy a company that provided services to water utilities, there were grumbles that she was overpaying. As it turned out, the services company was run by her fiance. An employee urged Enron's general counsel to look into Mark's potential conflict of interest. The whistle-blower? Martin. The deal was scuttled. According to a person close to Mark, it was Mark herself who decided to kill it.

By August 2000 it was time to go, and Mark was forced out. In terms of her own finances, the timing was fortunate. Mark sold her stock at a big profit. Outsiders, including Enron shareholders, were kept in the dark, but Skilling's empire was already starting to rot from within. Desperate to keep the price of the stock climbing, Enron's management was creating hundreds of off-the-books "entities," some of which served to hide or disguise heavy debts and losses. By 2001, the stock price was beginning to slide. Skilling won the ultimate prize--he succeeded Ken Lay as CEO in January 2001. But by August he was gone, claiming "personal reasons" for his early retirement.

These days, Mark isn't missing the jet lag or the 3 a.m. phone calls to foreign capitals. She has time to go to her teenage twin sons' hockey and basketball games and to share the gossip at upper-crust hair salons (last week's hot topic: Skilling's coming wedding to his former secretary Rebecca Carter).

As for Skilling, despite a bravura performance last week, his legal problems are only beginning. He's likely to spend years defending himself from civil suits and trying to stay out of jail. And his proteges? Just after Christmas, a group of eight Enronites showed up at Treasures for a last lap dance or two. They repaired to the VIP Room for a few drinks. Their favorite toast, according to a waitress, was "F--k Enron." The mood was less bitter at Teala's, a restaurant that once hosted an Enron party every week (for $8,000, Teala's would provide food, drink, parking and taxis home). As Enron was collapsing this winter, Teala's threw a farewell party. An employee tried to pay with his Enron credit card. The card was denied.

CORRECTION

In our March 11 article on Enron ("Enron's Dirty Laundry"), we incorrectly reported that former CEO Jeffrey Skilling was "engaged to an Enron secretary [Rebecca Carter], whom he promoted to a $600,000 job." In fact, she was elected "Corporate Secretary" by the company's board of directors. Ms. Carter, who has a master's degree in accounting, had previously served in several senior-level positions at Enron, including senior vice president. NEWSWEEK regrets the error.